LONDON (ShareCast) - (Sharecast News) - Ofwat called on the water sector to significantly improve its performance on Tuesday, after companies fell short of key environmental and service targets, costing the industry £157.6m in penalties this year.

The water regulator's annual report highlighted poor progress in pollution reduction, with companies achieving only a 2% reduction in incidents against a target of 30%.

That followed a 2023 increase in pollution incidents for nine out of 11 companies.

No company achieved a 'leading' status for the second consecutive year, underscoring the sector's struggle to meet environmental expectations.

Ofwat stressed that record proposed investments, including an £88bn package for the next five years aimed at reducing sewage spills by 44%, needed to be accompanied by cultural and leadership changes within companies.

The regulator's concerns extended to wastewater management, with proposed enforcement penalties totaling £168m for Thames Water, Yorkshire Water, and Northumbrian Water.

Despite some improvements, particularly in leakage reduction and asset health, the report showed inconsistent performance across the sector.

While companies like Thames Water and South East Water improved from 'lagging behind' to 'average' in their rankings, others, such as Anglian Water and Southern Water, remained in the 'lagging' category.

Customer satisfaction continued to fall, reaching its lowest level since Ofwat introduced the measure in 2020.

Ofwat also criticised the industry for overspending on water and sewerage allowances in 2023-2024 while underspending on service enhancements over the broader 2020-2024 period, leading to delayed improvements for customers.

The regulator warned that without a more innovative approach, the sector risked failing to meet public expectations for cleaner rivers, seas, and better services.

"This year's performance report is stark evidence that money alone will not bring the sustained improvements that customers rightly expect," said Ofwat chief executive officer David Black.

"It is clear that companies need to change and that has to start with addressing issues of culture and leadership.

"Too often we hear that weather, third parties or external factors are blamed for shortcomings."

Black said companies needed to implement actions immediately to improve performance, be more dynamic, agile and on the front foot of issues, and not wait until the government or regulators tell them to act.

"As we look towards the next price control, the challenge for water companies is to match the investment with the changes in company culture and performance that are essential to deliver lasting change.

"However, we are beginning to see that some companies are beginning to change their culture and adopt a more innovative and forward-thinking approach to tackling pollution.

"Severn Trent is taking action to cut sewage overflows with 617 improvements at 467 sites, delivered by over 400 specialist employees with plans in place for further investment."

Ofwat needed to see more firms showing a similar sense of urgency and action, David Black added.

Reporting by Josh White for Sharecast.com.

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